Canadian firm builds stable of agencies

On March 29, Colle & McVoy, Minneapolis, became the latest U.S. agency to join Toronto-based MDC Communications Corp. in its quest to become a multinational holding company.

MDC's strategy is to stake out a position similar to Interpublic Group of Cos., Omnicom Group and other holding companies that have bought lineups of large, multinational consumer agencies. MDC's plan is to become an international holding company for smaller agencies in business-to-business, integrated marketing communications and specialty marketing.

In the deal with Colle & McVoy, MDC agreed to pay $19 million for an 80% stake in the business-to-business agency, whose clients include Caterpillar, Pfizer Animal Health and 3M Co. Colle & McVoy's management, which forecast revenue of $25 million for this year, retains a 20% interest.

MDC, which has been on a recent spending spree in the U.S., calls the 80-20 ownership setup a "perpetual partnership."

For MDC, which generates the bulk of its revenue from its stamp, airline ticket and other secure-transaction printing businesses, the acquisition of agencies by its communications and marketing services division is an attempt to diversify its revenue.

MDC plans to take the division public in "the next year or two," said the company's president- CEO, Miles Nadal.

Maintaining relationships

MDC's perpetual partnership strategy attempts to counteract the inherent uncertainty present in acquiring an ad agency, whose business is based on relationships. The loss of one key employee or a single large account can devastate an agency's performance almost overnight.

"We believe very much in maintaining the good will of the human assets that go up and down the elevator," Mr. Nadal said. "If they're not vested in the success of the company, the ability to retain key people is diminished."

The perpetual partnership philosophy, which is designed to preserve and reward entrepreneurial behavior in the acquired companies, is a major reason Jim Bergeson, Colle & McVoy's chairman-CEO, supported the deal. He said the agency had turned down many previous offers from other suitors.

"It was appealing to us from a standpoint that MDC is truly a holding company," Mr. Bergeson said. "They don't want to run our business on a day-to-day basis. They're very hands-off. Their model of perpetual partnership is unique in the industry. It's a much more appealing way to get access to the capital that we need to grow our business."

MDC's plan to build a global network of integrated marketing communications agencies also appealed to Mr. Bergeson and Colle & McVoy. MDC now owns 19 agencies, 15 in Canada and four in the U.S.

The other U.S. companies, all of which were acquired in the past eight months, are: Margeotes/Fertitta & Partners, a New York-based consumer agency; Cybersight, a Portland, Ore.-based Internet marketing firm; and Source Marketing, a Westport, Conn.-based sales promotion agency and consultancy.

Expansion plans

MDC plans to acquire more marketing firms this year.

"We will look in Europe," Mr. Nadal said. "We will look in Asia. We will look in Latin America. We will look in Eastern Europe."

The goal is to allow even the relatively small agencies in the network to serve international clients and compete globally, Mr. Bergeson said.